J.P. Morgan maintained its target price for Hengan International (01044) unchanged at HK$49 but maintained upgraded its rating to "neutral" from "underweight" due to its increasingly compelling risk/reward profile and valuation.
The research house thinks most of the fundamental weakness has already been discounted. With the napkin recovery and pulp cost easing in 3Q, JPM sees more upside than downside risk to its 2019 base case earnings estimates.
Hengan is trading at 13x 2020 P/E (the low-end of 5-year P/E band of 13x~25x), 8% FCF yield and 5% dividend yield (all on consensus). Despite slower growth momentum, JPM thinks Hengan stands out among its consumer peers, with its 20%/18% OP margin/ROE backed by its 27%/20% share in China's sanitary napkin/tissue market (Ranked #1 position in both).
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